Economic Reporting Review
By Dean Baker

April 26, 1999


"Britain's Prescription for Health Care: Take a Seat" 
Sarah Lyall 
New York Times, April 18, 1999, Section 1 page 3 

This article reports on the waiting list for non-essential surgeries in Britain's public health
system. The article notes that there is now a waiting list to see specialists, which is generally a
precondition to be placed on the waiting list for surgery. The article notes that while the size of
waiting list for surgery has decreased, the waiting list to see specialists has increased. The data
presented in the article indicate that even summing the two lists together, the number of people
waiting for surgery in Britain has been declining over the last year, with the official waiting list
showing a drop of 189,310 and the waiting list to see specialists rising by approximately
100,000. 

While the article notes that Britain spends $67 billion presently on its national health care
system, it would be far more informative to compare its level of health care spending to that in
the United States. According to the OECD, Britain spent $1317 per person on health care in
1996 (counting public and private expenditure). By contrast, the United States spent $3898,
almost three times as much. While the vast majority of Britain's health care expenditures are
made through the public sector, and most health care expenditures in the United States are
private, the public sector expenditures per capita are actually 60 percent higher in the United
States. 


"Spending Bill Feared Likely to Repeat 1998 Fiasco" 
Tim Weiner 
New York Times, April 18, 1999, Section 1 page 25 

This article discusses Congresses efforts to produce a fiscal year 2000 budget. It includes
several pejorative references to government spending. For example, it notes that last year's
budget was "larded" with $21 billion of emergency appropriations. Later, in presenting the
possibility that Congress may opt to increase spending in certain areas, the article comments
that Congress "can fall off the wagon and drink deeply from the surplus." 

Unless Congress increases spending above current budget caps, the money available for
education, child nutrition, and many other areas will actually decline when adjusted for inflation.
The article intends to express disapproval of such spending, but it is not obvious that additional
appropriations in these areas would be bad for the nation. 


"House G.O.P. Chiefs Forgoing Revision of Social Security" 
David E. Rosenbaum 
New York Times, April 23, 1999, page A1 

This article reports on the apparent decision by the House Republican leadership to drop their
plans for restructuring Social Security. At one point the article discusses a plan proposed by
Harvard Economist Martin Feldstein, which Representatives Clay Shaw and Bill Archer had
plan to introduced. The article asserts that the plan had been "certified by Social Security
actuaries as sufficient to keep the system solvent for at least 75 years." 

This statement is incorrect. Social Security's actuaries did calculate that the plan would keep
the system solvent if the stock market produces 7 percent real returns on average over the
next 75 years. 

The actuaries did not project that this would actually be the rate of return in the stock market
over this period, they just applied the historic rate of return in their calculations. (The Social
Security actuaries do not make projections for the stock market because it is not currently
relevant to the program's solvency.) 

Since the actuaries project profit growth to be less than half as rapid in the next 75 years as in
the last 75 years, and current stock prices are at record highs in relation to earnings, it seems
implausible that stocks will provide the same rate of return as they did in the past. No
economist, including Martin Feldstein, has been able to demonstrate how stocks can continue
to generate 7 percent rates of return given current stock valuations and projected profit
growth. 


"Greenspan Criticizes U.S. Protectionism" 
John M. Berry 
Washington Post, April 17 1999, page E1 

"Greenspan Denounces Growing Protectionism" 
Richard W. Stevenson 
New York Times, April 17, 1999, page C1 

"U.S. Trade Deficit Continues to Balloon, Hitting $19.4 Billion" 
Richard W. Stevenson 
New York Times, April 21, 1999, page C1 

The first two articles report on a speech in which Federal Reserve Board Chair Alan
Greenspan warned of growing "protectionist" views in the country. In the speech, Greenspan
noted that some workers will occasionally be hurt by trade, but that it will produce benefits for
the economy as a whole. 

While increased trade may increase GDP, the number of workers who lose may be quite large.
Real wages for most of the work force have declined over the last 20 years due to increasing
inequality. Virtually all economists agree that increased trade was one of the factors that
contributed to the growth in inequality. 

These articles do not indicate whether Greenspan's concern about "protectionism" extends to
areas such as restrictions on foreign doctors practicing in the United States or copyrights and
patents. These forms of protectionism carry enormous costs for U.S. consumer and taxpayers.
For example, according to OECD data, the average doctor in the United States had an income
of $196,000 in 1995. By comparison, the incomes of doctors in Japan, Denmark and Sweden
averaged $107,000, $81,100 and $55,900, respectively. Health care outcomes provide no
evidence that doctors in these countries are any less well qualified than doctors in the United
States, since all of them have the same or higher life expectancies at various ages. 

If barriers to foreign doctors were lowered so the annual salary earned by U.S. physicians
were more in line with international competition, perhaps $100,000 per year, it would save the
economy more than $60 billion a year in doctors fees. More than $30 billion annually could be
returned directly to taxpayers (approximately $250 per household), since the government pays
for nearly half of the country's health care. 

From the articles, it does not seem that Alan Greenspan was referring to this type of
protectionism. It appears that the only type of protectionism that Greenspan was referring to in
his speech was trade restraints that might protect the jobs and wages of non-college educated
workers. The second Times article also expresses a concern that a surge in the size of the
trade deficit may increase support for this type of protectionism. 

"Plant Sterility Research Inflames Debate on Biotechnology's Role in Farming" 
Barnaby J. Feder 
New York Times, April 19, 1999, page A18 

This informative article examines efforts by agricultural companies to control the reproduction
of crops through bio-engineering. The article notes some of the issues surrounding this
technology, then comments, "critics say the problem is that market forces make it inevitable
that a handful of businesses will use breakthroughs in ways that maximize their profits, leaving
farmers totally dependent on chemicals they manufacture." 

Actually, to be profitable, biotechnology depends almost completely on the
government-granted monopoly provided by patents. In a free-market system, there would be
little if any profit to be made through the development of these technologies. 


"World Economy Passes From Crisis to Caution" 
Paul Blustein 
Washington Post, April 17, 1999, page A1 

This article discusses the apparent stabilization of financial markets in developing nations. At
one point it comments on the recent financial crisis in Brazil, and asserts that Brazil was "forced
to raise interest rates ever higher to induce investors to keep their money in the country." 

Actually, Brazil was forced to raise interest rates by the IMF, which made it a condition of any
further assistance. As was argued by Harvard economist Jeffrey Sachs, it's not clear that Brazil
had anything to lose by a further drop in its currency, nor that any decline would be
long-lasting. 

"Zhu's Trip to U.S. Ends on Bright Note" 
John Pomfret 
Washington Post, April 17, 1999, page A11 

This article reports on the outcome of Chinese Premier Zhu Rongji's trip to the United States.
The article quotes several people asserting that Zhu's liberalization policies have created
considerable opposition, but are "what's right for China." Later in describing the strength of the
opposition to Zhu, it states that "Zhu cannot even get reliable statistics about growth in his own
country…. While Zhu's aides set the growth rate at 7.8 percent, few Western economists
believe it surpassed 5 percent." 

The poor quality of China's statistics may reflect a lack of support for Zhu's liberalization
policies, as the article indicates, but everyone agrees that China's economy continues to grow.
By contrast, other nations in East Asia are in the midst of a steep recession. In the last year,
Hong Kong's economy declined by 5.7 percent, Thailand's by 8.0 percent, and Indonesia's by
13.9 percent. The fact that China's economy is not open in the same way as these other
countries is generally accepted as being the main reason that it has been able to continue to
grow during this period. 

"I.M.F. Warns Global Economy Could Slow This Year and Next" 
Paul Lewis 
New York Times, April 21, 1999, page C10 

This article discusses the IMF's latest set of economic growth projections. The only person
who is quoted or cited in the article is C. Fred Bergsten, the President of the Institute for
International Economics, and a strong supporter of the IMF's policies. According to Bergsten,
the IMF is concerned that developing nations may recovery too quickly and therefore may not
adopt the policies it is urging: "The fund is afraid that if recovery starts, the countries of Asia,
Latin America and Eastern Europe will back off from the deep structural and economic
reforms the recent crisis showed they must make." 

It is not clear that the financial crisis demonstrated that structural reforms in these nations are
necessary. The one major developing nation that has managed to maintain strong growth
throughout this period is China. Most economists attribute this the fact that has not thus far
opened up its economy in the manner advocated by the IMF. In other countries in East Asia,
such as Korea and Thailand, the liberalization of capital flows at the IMF's insistence, was a
major factor in the debt run-up that led to the crisis. 

"Rubin: Fix Global System in Small Steps" 
Paul Blustein 
Washington Post, April 22, 1999, page E1 

This article reports on a speech by Treasury Secretary Robert Rubin in which he laid out his
view of the necessary changes in the world financial architecture. At one point it noted that
Rubin would support a plan in which the IMF would allow nations to default on their debt,
"provided the government was genuinely trying to put its economic house in order." 

One of the major factors creating instability in world financial markets has been the complete
inability of the IMF to determine whether a nation had, or was getting, its economic house in
order. For example, the IMF issued extremely positive country reports about Indonesia,
Thailand and Korea just before their financial crisis in the late summer and fall of 1997. 

It also praised the economic agendas of the Russian "reformers" who managed to shrink the
economy by close to 50 percent in seven years. It has been extremely critical of the new
Russian government, which has actually succeeded in restoring growth in the industrial sector
over the last year. (See "Signs of Stability Are Identified in Russia's Economy," by Neela
Banerjee, New York Times, 4/14/99, page C5; ERR4/19/99.) Unless the IMF develops
the ability to recognize sound economic policies, there is little reason to believe that
giving it greater discretion in international financial matters will enhance stability. 


Outstanding Stories of the Week

"Most Get Work After Welfare, Studies Suggest" 
Carey Goldberg 
New York Times, April 17, 1999, page A1 

This article discusses the experience of welfare recipients after they leave the welfare
rolls. It notes that most seem to find work, but many do not, and even some who do
find work end up worse off than they were on welfare. 

"Symbol of Welfare Reform, Still Struggling" 
Jason DeParle 
New York Times, April 20, 1999, page A1

This article examines the history of a working mother who has become a symbol of
the success of welfare reform in Wisconsin. The article is part of an ongoing series of
articles that examine the impact of welfare reform in Wisconsin, the state that has
gone furthest in removing people from the welfare rolls. As with earlier pieces, this
article shows ways in which welfare reform has had a positive impact, but also points
out the continuing difficulties facing former welfare recipients. 

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. 


Recent articles can be found on the websites of the New York Times and Washington Post.